Rally in Gold - Over or Yet to Be Seen?

The news over the last few weeks, including worries about a possible major
banking crisis could cripple the Eurozone economy as a whole, has sent global
financial markets down heavily. Many around the world are worried that Europe
is about to face a big bankruptcy or sudden default that could set off a new
phase of panic in Europe and beyond. It's been nearly two years since the euro
crisis began with concerns about the solvency of Greece. Since then it has
been a slow-motion drain of confidence and credibility as Europe's leaders
have been putting out fires one at a time.

Still, with a new (European) bailout plan ahead, the near time price movements
in stocks don't have to be bearish.

The situation is more complicated in case of the precious metals market, because
of multiple factors being in place right now. We will start with the analysis
of gold itself (charts courtesy by http://stockcharts.com).

Let's take a look at the very long-term chart (if you're reading this essay
on SunhineProfits.com, you can the above chart to enlarge). Last week began
with sharp declines in gold prices but the direction soon reversed and gold
rallied strongly later in the week. RSI levels also moved slightly higher.

Last week's declines tested the support level and since it held, the situation
remains bullish. Actually, since there have now been verifications of this
support level, the situation is slightly more bullish than it was before. Other
than the decline and subsequent bounce, little else has changed in the gold
market.

In the long-term chart for gold from a non-USD perspective, index levels did
not decline significantly last week although gold's price did (temporarily).
This was due to the rally in the USD Index, which pretty much canceled out
the decline from a non-USD perspective. The recent breakout here has been invalidated
and with a strong support in place, the index is likely to rally from here.

Looking at gold from the perspective of the Japanese yen, we see the usual
price action along the lower border of the trading channel of the chart. It
appears that a rally is ahead and the only question appears to be whether the
index will move to the mid-channel range or to the upper border of the trading
channel. There appears to be about a 50-50 likelihood of either move at this
point.

It appears that our opinion from an essay on a possible gold
rally has been confirmed to a large extent. One week ago we stated:

Looking at gold from the perspective of the Japanese yen, we also see RSI
levels now oversold. Recently we have seen a decline that was much sharper
than in the past. Each time the upper border of the trading channel was surpassed,
index levels quickly moved to the lower border and this marked an important
bottom from the USD perspective as well. Such has been the case once again,
as the index moved below the lower border of the trend channel and quickly
reversed. It is now right at this level. Similar price action patterns have
been seen in the past and a rally generally has followed. The implications
are bullish for gold.

The implications were bullish back then, and they still are given that no
meaningful rally has been seen from the yen perspective yet.

In the short-term GLD ETF chart, once again we see an invalidation of a breakdown.
The price action has continued with a sharp move to and briefly below the level
of the previous bottom. A quick reversal invalidated the breakdown and prices
are now above the 61.8% Fibonacci retracement level. While volume levels have
not been significant, this is generally not of concern near market bottoms.
It is however, an important factor for local tops in the GLD ETF.

Summing up, the situation remains bullish for the yellow metal although
there were some scary moments last week. It appears that we have been through
a slight period of price correction and the outlook from here is bullish.

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Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who
takes advantage of the emotionality on the markets, and invites you to do
the same.

His company, Sunshine Profits, publishes analytical software that anyone can
use in order to get an accurate and unbiased view on the current situation.

Recognizing that predicting market behavior with 100% accuracy is a problem
that may never be solved, PR has changed the world of trading and investing
by enabling individuals to get easy access to the level of analysis that
was once available only to institutions.

High quality and profitability of analytical tools available at www.SunshineProfits.com are
results of time, thorough research and testing on PR's own capital.

PR believes that the greatest potential is currently in the precious metals
sector. For that reason it is his main point of interest to help you make
the most of that potential.

As a CFA charterholder, Przemyslaw Radomski shares the highest standards for
professional excellence and ethics for the ultimate benefit of society.

Disclaimer: All essays, research and information found above represent
analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates
only. As such, it may prove wrong and be a subject to change without notice.
Opinions and analyses were based on data available to authors of respective
essays at the time of writing. Although the information provided above is
based on careful research and sources that are believed to be accurate, Przemyslaw
Radomski, CFA and his associates do not guarantee the accuracy or thoroughness
of the data or information reported. The opinions published above are neither
an offer nor a recommendation to purchase or sell any securities. Mr. Radomski
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Investing, trading and speculation in any financial markets may involve high
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